Holiday habits have changed dramatically in recent years. In the nineties and noughties, consumers wanted to spend their time away from work relaxing on European beaches, taking advantage of all-inclusive deals and guaranteed sun just hours from home. How times have changed.

 

Today, we are seeing increasing demand for far-flung destinations, with cultural experience the order of the day.

This is perfectly illustrated by MasterCard’s latest Global Destination Cities Index, which found cities in Asia-Pacific are becoming the ‘go-to’ destinations, followed by those in the Middle East and Africa, and Latin America. In particular, Osaka, Tokyo, Seoul and Bangkok have all surged in popularity over the past couple of years as consumers demand more exotic and culturally rich locations.

This trend shows no signs of abating, bringing with it exciting growth opportunities for travel companies to do business in new markets.

We carried out research with Phocuswright which found European travel agencies are increasingly doing more business internationally. In the past three years alone, the number of European travel companies accepting payments in more than ten different currencies doubled, and some even reported grappling with over 50 different currencies. Clearly, it’s in the interest of travel companies to meet the needs of the more adventurous tourist – but it comes at a price.

Doing business in more international markets means dealing with additional foreign exchange and cross-border fees, as well as increased administration costs of setting up in new countries. With margins already tight, a significant currency fluctuation could see any profits vanish. Recently, a major tour operator billed its customers an additional surcharge to cover the costs of the pound dropping in value. A major challenge facing travel companies today is meeting customer demand for more exotic locations while trying to remain profitable. A simple solution to this is for travel companies to re-examine their international payments strategy.

Many travel companies continue to rely on traditional methods of payment for international transactions. But few agencies are aware of the hidden costs such as surcharges and FX fees which further increase the cost of payment. For example, our analysis of bank fees showed agencies relying solely on their bank for international payments could be paying 3% more on each transaction compared to alternative options - a cost which could significantly erode margins.

The good news is that payment options have evolved to lower the cost of international payments. This includes offering local funding and settlement which dramatically reduces the cost of payments by avoiding surcharges and fees. Added to this are a range of FX options designed to lower costs by giving travel companies control of FX timings and rates. This includes real-time conversion that allows agents to lock-in rates at the time of booking to protect from negative FX fluctuations.

With international travel only set to increase, taking the simple step to re-examine cross-border payment strategies will allow travel companies to satisfy customer demand while keeping costs low.

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